TracFone Will Pay $40 Million In FTC Throttling Suit

TracFone Wireless Inc. will pay $40 million to consumers for falsely promising them “unlimited” data service but then slashing data transfer speeds after they exceeded certain limits. This is according to a settlement against filed in California last month by the Federal Trade Commission. The FTC’s federal complaint accused TracFone of promising consumers access to unlimited data in plans offered for around $45 per month under its various brands, including Straight Talk, Net10, Simple Mobile, and Telcel America, but then drastically reducing or cutting off entirely their mobile data after they had exceeded certain fixed limits during a 30-day period.

The practice, known as “throttling,” was never disclosed to consumers until 2013, the FTC said. Even then, the disclosure was hidden amongst fine print or on the rear of the phone’s packaging, where it was unlikely to be seen by consumers. The slowdowns ranged from at least 60 percent of normal service to as high as 90 percent in certain cases, according to the FTC, and has been ongoing since 2009. The FTC alleges that TracFone varied its data limits, but generally slowed data service when a customer used one to three gigabytes, and suspended data service at four to five gigabytes. Only when customers complained about the practice were they warned for the first time about their “excessive data usage” in a prerecorded message, the suit says.

Even then, the company never disclosed its data limits. The agency claims that TracFone internal documents showed that the throttling policies had no technical purpose, such as reducing network congestion, and were instead created to cut the high costs of providing unlimited data. In some cases, the company terminated all of the services including talk, text, and data after consumers had gone beyond the allocated limits. Jessica Rich, director of the FTC’s Bureau of Consumer Protection observed:

The issue here is simple: when you promise consumers ‘unlimited,’ that means unlimited. This settlement means that Straight Talk, Net10, Simple Mobile and Telcel America customers will be able to get money back from the company for services the company promised but didn’t deliver.

An FTC spokesman said that the amount consumers can expect to receive from the settlement will vary depending on the number of claims filed. TracFone is the country’s largest prepaid mobile phone service provider with approximately 25 million subscribers. A spokesman for the company called the accord “amicable.” The FTC’s complaint against TracFone marks the latest development in the agency’s crackdown against mobile phone companies and tech companies like Google Inc. over alleged consumer protection violations.

The agency last year targeted AT&T Mobility LLC in a lawsuit over alleged throttling, and reached a $90 million settlement with T-Mobile USA in December and a $105 million settlement with AT&T Inc. for placing unauthorized, third-party charges on consumers’ phone bills in a process known as cramming. The agency reached a $19 million settlement with Google Inc. in September to settle charges relating to children’s in-app purchases. All told, the FTC actions have put more than $200 million back into consumers’ hands, according to the agency.The $40 million settlement was filed in coordination with several private class actions filed against TracFone in California federal court over the same allegations, and will be used to settle claims brought on behalf of the private classes as well.